The compressor doesn’t care whether you use fresh air or recirculated air, so set the controls any way you want. It makes no difference to the mechanical things, nor will it have any impact on fuel mileage.
I’d really love to hear your co-worker’s explanation of how recirculated air damages the compressor. Could you get him or her to post it?
While you’re at it, can you explain how recirculating air increases gas mileage?